I have a high school senior and was thinking of getting her a credit card (in her name, but secured by me) with a low limit to begin building her credit. Does it really matter at this age to build credit? I would have her keep the credit card through the college years. I am not sure how much a $500 credit card will build credit? Pros/cons?

I would vote not and I think having a credit card to "build credit" is overrated. I think the key factors are income and track record of paying bills on time. If a person has the income and assets they will get a mortgage without any problems. I think you would do your senior more by teaching them to regularly save IMO.

"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

soccerdad12 wrote:I have a high school senior and was thinking of getting her a credit card (in her name, but secured by me) with a low limit to begin building her credit. Does it really matter at this age to build credit? I would have her keep the credit card through the college years. I am not sure how much a $500 credit card will build credit? Pros/cons?

I think it would serve a 2 fold purpose. Teach her how to manage credit on a very small level (max of $500) so she can't get into any real financial trouble and also start to build a credit file. I really want to teach her about credit cards before she goes to college and has access to all the credit cards pitched to students.

Probably from a credit building standpoint it doesn't make much of an impact. From a personal standpoint there certainly would be some opportunities to get a better handle on the aspects of wise use of credit. If and when she attends college and/or spending some time away from home, the use of a credit card has some useful aspects.

bengal22 wrote:I would vote not and I think having a credit card to "build credit" is overrated. I think the key factors are income and track record of paying bills on time. If a person has the income and assets they will get a mortgage without any problems. I think you would do your senior more by teaching them to regularly save IMO.

Teaching your child to save / live below their means isn't mutually exclusive with being responsible with credit. If anything, they are two sides to the same coin.

CABob wrote:Probably from a credit building standpoint it doesn't make much of an impact. From a personal standpoint there certainly would be some opportunities to get a better handle on the aspects of wise use of credit. If and when she attends college and/or spending some time away from home, the use of a credit card has some useful aspects.

Length of credit history is the number on most important factor when the credit analysts look at people. Getting your child in high school a co-signed credit card will significantly improve their ability to get decent credit cards when they graduate from college. I had one when I was 16 (limit of either 500 or 1k), and when I got my first job after college, I needed to get a credit card with a decent limit for my consulting job. I was able to get an Amex with a 12k line no problem. Other co-workers who didn't have any credit cards weren't able to get much more than a 1k line or so, which didn't really help since we needed to put a hotel and plane flight, up to 4x for a month on there.

This is a YMMV situation, but if you have any amount of trust in your child, I would 100% endorse the idea of giving them some responsibility via a credit card.

My parents made sure I got a cc when I was 18... Although I was a frugal bastard even back then, so they probably felt pretty safe :p

Looking back it helped a lot when I got out of uni as I'd done a lot of living at home and escaped without loans... But without having rented (unless dorms count?) or having had student or car loans or some such, that cc was a large chunk of the basis of my credit history.

Shortly after graduating and obtaining a job I discovered I had enough of a credit score to get into a decent apartment without a crazy deposit and then a few months later to get a top-tier rate on a car loan.

Without that cc through 7 years of uni, I have no doubts that I would have come out with almost no credit history and have been in a much more interesting situation.

It certainly can't hurt, as long as your kid will make the payments on time. I got one my sophomore year of college, and as other have said, it has helped greatly with building my credit history and letting me get the necessary private student loans and apartment leases etc. And honestly, unless they don't miss any payments, there's only so much damage he/she can do. I've never missed a payment on mine and my credit limit has reached a whopping $2700. I'll be honest, I let it be maxed out for most of college, deciding that I'd rather have a little more money then and pay it off after graduating. I figured even if I got a job making only $20k, it wouldn't take me more than a couple months to pay it off, and I was right.

bengal22 wrote:I would vote not and I think having a credit card to "build credit" is overrated. I think the key factors are income and track record of paying bills on time. If a person has the income and assets they will get a mortgage without any problems. I think you would do your senior more by teaching them to regularly save IMO.

And yet length of having credit cards is one of the larger factors in the FICO score that young people can only have control over by opening credit cards early. Anything less than a decade of credit card history is usually a big ding in the FICO score, so it's not really "overrated" to say that having a credit card builds credit, at least when one is referring to the FICO score.

To the OP, I would say to get a small credit card with a small limit when she turns 18. Make sure she knows that this is not free money, but is more like a debit card where she has to pay off every single penny when the bill comes each month. It's treating the cards like free money that never has to be repaid which gets most young people in trouble with credit cards (and causes some people to be so against credit cards when it's not the cards that are the problem, but rather people's abuse of the cards). But if you instill good habits in your daughter now, you can help her avoid that particular fiscal pitfall and help her establish the length of her credit history at the earliest possible moment.

28 year old here
Had debit card at 14 first credit card in late high school. Pros outweigh the cons if you trust your kid. Keep the limit low, teach em to pay it off. Definitely cant hurt to have a few years of credit history when they need their first loan. I know it helped when I financed my second car(used honda in bogle head fashion) when my hand me down chrysler died during medical school.

bengal22 wrote:I would vote not and I think having a credit card to "build credit" is overrated. I think the key factors are income and track record of paying bills on time. If a person has the income and assets they will get a mortgage without any problems. I think you would do your senior more by teaching them to regularly save IMO.

And yet length of having credit cards is one of the larger factors in the FICO score that young people can only have control over by opening credit cards early. Anything less than a decade of credit card history is usually a big ding in the FICO score, so it's not really "overrated" to say that having a credit card builds credit, at least when one is referring to the FICO score.

To the OP, I would say to get a small credit card with a small limit when she turns 18. Make sure she knows that this is not free money, but is more like a debit card where she has to pay off every single penny when the bill comes each month. It's treating the cards like free money that never has to be repaid which gets most young people in trouble with credit cards (and causes some people to be so against credit cards when it's not the cards that are the problem, but rather people's abuse of the cards). But if you instill good habits in your daughter now, you can help her avoid that particular fiscal pitfall and help her establish the length of her credit history at the earliest possible moment.[/quote

Maybe i'm just old skool, but I have seen too many folks get messed up with credit cards. We got our first card when we were married, one child, and we always paid off the balance. We also never had an issue because we had good jobs and assets to getting a good loan rate. I personally would not encourage an 18 year old to get a credit card.

"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

My 22 year old recentl college grad daughter has had her own credit card since age 18. I monitor it and she's done just fine, using it for only stuff she'd buy anyway and paying it off each month. Her credit score is now, accordingly, 790! I had her and her little brother, who just turned 18, as "authorized users" on one of my credit cards since they were about age 10. This helped build her credit but I heard this no longer helps authorized users build credit. That being said, Citicard just approved my son for a $2000 line at age 18. Again, I'll monitor this. He is even cheaper than his sister (the apples doesn't fall far from the tree!) so I'm not worried about abuse.

My experience with early credit has also been great. I got my first card ($500, from my local credit union) at 15.

I think that starting to use credit cards at such a young age, when my parents could ask me if I had paid in full every month, and if I was budgeting appropriately, was very helpful. They made sure I was learning responsible habits. It certainly eased the transition into adulthood for me- I had to figure out enough stuff when I started living on my own, so having this already figured out was very helpful!

Now, at 28, I have a score close to 800 and a ton of credit available to me so I can find the best sign-on bonuses, promotional rates, etc. These have helped me pay off student loans faster (sign-on bonuses, specifically). I think you will do a great favor to your kids if you show them how to responsibly handle credit before they leave home.

bengal22 wrote:Maybe i'm just old skool, but I have seen too many folks get messed up with credit cards. We got our first card when we were married, one child, and we always paid off the balance. We also never had an issue because we had good jobs and assets to getting a good loan rate. I personally would not encourage an 18 year old to get a credit card.

Who is a better judge of her ability to handle the responsibility that goes along with having a credit card, you or her parents? It does her a disservice to lump her in with all the people who can't handle credit when you don't know a thing about her. If the OP thinks his daughter can handle the responsibility (and is willing to make the appropriate life-lesson lectures and cancel the card if she does not), then that's all that matters. The OP asked if it getting a low-limit card at this age could help build credit, not for a critique of his daughter's ability to handle responsibility based on observations of other teenagers.

For my situation, I waited to get a credit card until college. By then, the credit card companies offered me a *Very* small credit limit ($600).

If you want them to have a decent limit, let them get the card while they are under your roof.

Also, I am extremely disciplined from my parents and *never* let a payment go unpaid. Never just pay the minimum balance due. I treated it like a debit card. If they act like that, go ahead and give it to them!

Bogleheads.org, my new addiction!! Goodbye Starcraft & League of Legends..

bengal22 wrote:And yet length of having credit cards is one of the larger factors in the FICO score that young people can only have control over by opening credit cards early. Anything less than a decade of credit card history is usually a big ding in the FICO score, so it's not really "overrated" to say that having a credit card builds credit, at least when one is referring to the FICO score.

I have a buddy, I believe 28 or 29, that is having credit score problems due to credit age history. I have had a card since high school and have never had this problem. Credit age is very important.

Credit age is something that you can't accelerate. I would get a CC ASAP regardless of the age. With a good credit history, not only will your mortgage payment be cheaper, you get lots of free stuff like free money and free travel whenever you apply for new cards.

"Need?" - No. But, I think it's okay if:
1) She has expressed interest in having a credit card;
2) She has demonstrated the ability to manage credit appropriately.
You should guide her through the application process, but she should be responsible for applying for the card, not you, even if it's secured with your funds. She should wait until age 18, and you should NOT co-sign.

My story: I got my first credit card in college at age 18. The limit was $200 initially, but increased to $500 then $1000 within a year. At first, I was very responsible and always paid it off in full each month. Then one month, I didn't have enough money to pay off the entire balance, so I carried a balance into the following month. Then I rationalized maxing it out, "If I can't pay it off, I might as well max it!" I don't remember why I finally decided to stop using the card until it was completely paid off, but it took about 6 months to do it and I threw ALL my extra money at it. Looking back, I'm actually grateful I learned that lesson with a $1000 balance instead of larger. It was AWFUL to be in debt and pay it back, and I will never go through that again. Having the card definitely boosted my credit score, though; it was over 800 by age 25.

kydan wrote:For my situation, I waited to get a credit card until college. By then, the credit card companies offered me a *Very* small credit limit ($600).

And that's fine for building a credit record. When you have a high-paying job and can afford more credit, you will already have credit established and thus will get a larger credit line (on the same or a different card) because you have a good history.

My first credit card (which I got as a graduate student) had a $400 limit. After a year of using the card regularly and paying it off in full, the bank raised my limit to $1300, and after another year, to $2200. After that, I was readu to switch to a different card with better terms.

It's also better to make mistakes on a $500 credit line versus a $5,000 credit line. I made plenty of credit mistakes but thankfully I had low credit then so I didn't do too much damage. I will never pay credit card interest again. I use the 0% purchase terms to my advantage and take every advantage of the points/rewards/bonuses.

Not really. If your child attends college or a school of higher learning, they will be bombarded with "free" applications for credit including giveaways like a free "t-shirt", "mug" or other knicknack.
What you might do is place them on your own card as an authorized signer - you will have the ability to revoke their card at any time. I don't believe credit card companies will give credit to minors, you may have to co-sign for them to obtain one - something to do with enforceability of contracts and the ability for a minor to understand transactions entered into. Not sure the laws have been changed regarding this.

kydan wrote:For my situation, I waited to get a credit card until college. By then, the credit card companies offered me a *Very* small credit limit ($600).

And that's fine for building a credit record. When you have a high-paying job and can afford more credit, you will already have credit established and thus will get a larger credit line (on the same or a different card) because you have a good history.

My first credit card (which I got as a graduate student) had a $400 limit. After a year of using the card regularly and paying it off in full, the bank raised my limit to $1300, and after another year, to $2200. After that, I was readu to switch to a different card with better terms.

Wow, that was really low. First card I got as an undergrad was $1,000, but required me to give up almost everything including my blood type to get it. This, after the card company had guaranteed a card to anyone who applied and provided a copy of college id. Thankfully, I was working, so I provided a copy of paystub,id and major declared. Apparently, they handed out credit on the basis of your major - ie. english majors were given less credit than those who majored in business/accounting or pre-med/pre-law. Go figure!

When I was a college student back in the late 70s, it was very hard to get credit cards without established credit. Then I received a signature offer from Standard Oil. This was a good deal, as I had card that was helping build my credit, but wasn't much of a threat financially. It was difficult to go crazy with it. From their standpoint, it made me a loyal Standard customer as I would seek out their or affiliated stations because I could use the card and not eat up cash. The back of the card showed what stations in various states would take the card.

GRT2BOUTDOORS wrote:Not really. If your child attends college or a school of higher learning, they will be bombarded with "free" applications for credit including giveaways like a free "t-shirt", "mug" or other knicknack.

One of the recent regulatory reforms limits how much credit card companies can offer giveaways to college students, particularly with on-campus kiosks. So college students are far less bombarded these days.

GRT2BOUTDOORS wrote:What you might do is place them on your own card as an authorized signer - you will have the ability to revoke their card at any time. I don't believe credit card companies will give credit to minors, you may have to co-sign for them to obtain one - something to do with enforceability of contracts and the ability for a minor to understand transactions entered into. Not sure the laws have been changed regarding this.

I'm pretty sure this trick no longer works to build credit for the authorized user. It just gives them access to credit. If the intent is to build credit and a long credit history, getting a card with a small limit that the parent also monitors (but doesn't have to co-sign for, just agrees with the child that the parent gets to see the bills) when the child turns 18 is the way to go. But only if the parent feels the child is able to handle the responsibility.

yeledbed wrote:"Need?" - No. But, I think it's okay if:
1) She has expressed interest in having a credit card;
2) She has demonstrated the ability to manage credit appropriately.
You should guide her through the application process, but she should be responsible for applying for the card, not you, even if it's secured with your funds. She should wait until age 18, and you should NOT co-sign.

My story: I got my first credit card in college at age 18. The limit was $200 initially, but increased to $500 then $1000 within a year. At first, I was very responsible and always paid it off in full each month. Then one month, I didn't have enough money to pay off the entire balance, so I carried a balance into the following month. Then I rationalized maxing it out, "If I can't pay it off, I might as well max it!" I don't remember why I finally decided to stop using the card until it was completely paid off, but it took about 6 months to do it and I threw ALL my extra money at it. Looking back, I'm actually grateful I learned that lesson with a $1000 balance instead of larger. It was AWFUL to be in debt and pay it back, and I will never go through that again. Having the card definitely boosted my credit score, though; it was over 800 by age 25.

mlipps wrote:
You can't get a card now until you're 21 without someone cosigning.

Discover Card will give you a card with a small line if you are under 21.

Part of the CARD act was that you have to be 21 or show "substantial income" correct? Maybe card issuers are getting around this by saying that an income of 6k from summer work is enough to justify a $500 credit limit?

mlipps wrote:Part of the CARD act was that you have to be 21 or show "substantial income" correct? Maybe card issuers are getting around this by saying that an income of 6k from summer work is enough to justify a $500 credit limit?

Credit card borrowers under the age of 21 just have to provide proof of the "independent means" to repay (e.g. their money, not their parents' money), not substantial income. Essentially this means if the under-21 borrower has documented earned income, they are treated no differently than an over-21 borrower. But if the under-21 borrower does not have documented earned income, they now must have a co-signer, whereas previously credit card companies would still issue cards to college-age students even if the only income the student had was from their parents.

Edit: Just found an article talking about a study of college students applying to credit cards. It would seem the earned income aspect is not as strongly enforced as one might assume from reading the summary of the legislation. 27% of the surveyed under-21 students used student loan as income and 35% used money for relatives as income: http://www.insidehighered.com/news/2012 ... ectiveness

bengal22 wrote:I would vote not and I think having a credit card to "build credit" is overrated. I think the key factors are income and track record of paying bills on time. If a person has the income and assets they will get a mortgage without any problems. I think you would do your senior more by teaching them to regularly save IMO.

I completely disagree. I wish I could go back in time and add a few years to my credit history (probably would add 50 points to my credit score). I have a 6 figure income, but when I apply for credit cards, I get something like a $2000 limit, and they don't bother verifying income because they only care about credit scores. When I applied for a small mortgage with 25% down payment (I could afford to pay it off in 5 years), I still had to pay a 0.25% fee because my credit score was just a few points short of 740. I think my auto insurance would be a bit lower too if I had a longer credit history. I don't have a car loan but I heard that you need 800 to get the best rates, regardless of income.

The system is flawed, but you can game it by planning ahead and getting a secured card ASAP.